Desperate measures in desperate times

Dire financial circumstances or perhaps alluring television commercials promising “Why wait for your structured settlement” have driven some people to look for huge paydays by cashing in their settlements early. But the evidence shows the only ones making big bucks in the deals are the companies offering them by taking advantage of the desperate or impatient.

Investing in the future

Annuities and structured settlements pay out money over a period of time. Investors put down a lump sum principle and receive structured payments over the specified period of time, sometimes for several years and sometimes over the course of a lifetime. One advantage of a structured payout agreement is that the beneficiary receives a guaranteed income during that designated period.

Pat Bell of Bell Financial in Beaumont is in the settlement planning business. He assists people who have received settlements plan for their financial future. He said structured settlements are often a good idea, especially for young people or people who have had life-changing injuries, because they provide a steady income, whereas people receiving large settlements could find themselves penniless if they are not careful with their money.

“I help families make good decisions on what to do with sudden income: an inheritance, lottery winnings or, most often, legal settlements,” Bell said. “These structured settlements are set up to protect people, not just from outside predators, but from themselves. They are set up to protect families and kids, folks who have been injured, for the long haul.”

I need cash now!

We have all seen the commercials offering fast cash to people willing to sell their structured settlements or annuities. In one commercial, actors on a “Structured Settlement Express” bus operatically proclaim, “I have a structured settlement but I need cash now,” and “I have an annuity but I need cash now!” An actor dressed as a Viking bellows, “If you get long-term payments but you need cash now,” and the bus riders sing their response in unison, urging viewers to call their company for fast cash.

Companies like the ones in the commercials offer buyout deals to provide cash now, but at what cost to consumers?

“You get people who have a life-changing event, a need occasionally, for funds,” Bell said. “Maybe they have had a medical emergency or some sort of a major life-changing event. These companies in those situations could be potentially beneficial to the claimant; however, typically, the deal they offer them is so poor that it is not in the consumer’s best interest to work with a company like that. …These companies know they’ve got people over a barrel. They know the people are in a bad situation, and they try to take advantage of it.”

Bell said if you doubt the buyout companies are making money hand over fist, just look at the advertising they purchase.

“With the amount of advertising these companies do, they have to have a huge (profit) margin to be able to pay for all that and still make a profit. They are on daytime TV constantly. They are all over the Internet. They are quite prevalent,” he said. “It is predatory. A lot of times they are coming after these people who need help and have an immediate need for cash.”

Be fair or beware

Bell said when companies want to buy annuities or structured settlements from consumers, they have to go in front a judge. The companies have an attorney or team of attorneys representing their interests, but the sellers most often are not legally represented. According to Bell, the judges hearing these cases face some hard decisions.

“You have a lot of judges … who do not like to approve these (buyouts), but these people are consenting adults and they are looking for it, so it’s tough,” Bell asserted. “The judges can tell them no, but … it puts the judges in a bad situation. They know the money is there and they are trying to protect it and protect these families for the long haul, but they (the families) are cashing them out for pennies on the dollar.”

Judge Bob Wortham of the 58th District Court said he feels a responsibility to enforce fairness when hearing cases regarding these buyouts.

“They have all these companies that buy annuities. They really try to take advantage of people,” Wortham said. “It’s not unusual for some of them to come in here and want to buy an annuity, and I just tell the people I am not going to do it. Sometimes (the companies) come up with three or four offers. … I had one who had to go back five different times to tell me what they would pay, and finally they got it up to an amount that was reasonable. … But the judges have to protect the people because what they (buyers) come in here with is never their final offer. It’s a shame that they don’t just give these people a fair offer from the beginning. You just have to tell them you’re not going to do it. … But the courts have to negotiate with them. My job as a judge is to protect these people from the predators. It’s a shame I have to do it. It’s a shame they won’t give them a fair price to begin with.”

Wortham said he remembers one case in particular that really stood out.

“This is the most memorable one,” Wortham related. “We had a guy (representing a buyout company) that came in probably about a year ago. There was a nice young lady, probably about 24 or 25. She had an annuity, a $303,000 annuity with a present day value of $220,000. This guy from Dallas came in and he was going to buy it. He wanted to pay $9,000 for that annuity. Of course, she did not have anybody representing her. He had convinced her it was only worth $9,000. … I basically kicked him out of the courtroom and told him not to come try to steal from the people of Southeast Texas anymore.

“People in Southeast Texas are being taken advantage of and a lot of money is being taken out of the community by these annuity buyouts.”

What to do, what to do …

Wortham suggested people educate themselves before selling their annuities or structured settlements to the buyout companies. They might have other options.

“There are other ways to do it now,” Wortham said. “Some of the annuity companies are allowing you to contact them directly with your lawyer, and they will pay you present day value if you get an order from the court so instructing. There are a lot of things that could be done.

“I think it would be a good practice for people to hire their own lawyer and have that lawyer contact their annuity company to see if they can resolve it that way. If people knew that was a potential option, they may go hire a lawyer who knows something about finance and have them contact them. You would have to go to a lawyer who knows what they are talking about.”

“If they have access to any other funds, typically they are better off getting money elsewhere,” Bell said. “They know folks need to cash out. … In my experience with my clientele, when they have called me and wanted to do this (selling structured settlements), I try to talk them out of it almost every time because it is usually a terrible deal for the consumer. … If they have access to cash, they are better off getting money anywhere else.

“The best thing to do is work with your attorney. They will probably suggest someone to you (who works in settlement planning). … Basically, you want to talk to a professional, someone you feel comfortable with and who will give you good advice and good service.”